Following the approval of only a few loan applicants under the Economic Stimulus Programme (ESP), Prime Minister Tshering Tobgay announced that the government would review the risk-sharing mechanism between the government and financial institutions (FI).
Out of 193 applications received by FIs under the Economic Stimulus Programme (ESP), only 12 projects were approved, with Nu 8.3 million disbursed as of October 8. The remaining applications are still under review by the FIs.
“The ESP did not go well as expected to contribute to economic recovery,” he said, adding that FIs have 100 percent risks with no collateral at four percent interest rate.
“We gave full responsibility to FIs. If loans are not recovered, it becomes their responsibility,” the Prime Minister said, adding that loan proposals under ESP underwent a more stringent assessment compared to typical loans, in accordance with FI guidelines.
“We will review the risk-sharing model between the government and the FIs to improve the process,” he added.
On October 9, Lyonchhen met with the chief executive officers of FIs and directed them to assist applicants struggling with loan applications and to expedite loan disbursements under ESP.
Lyonchhen also announced that the government would cover the costs of additional human resources recruited to handle ESP loans for the next five years, including support for Bhutan Development Bank Limited, which specialises in rural banking.
Of the 193 applications received under ESP, 148 were related to primary agriculture and livestock, while 47 were in the production and manufacturing sector.
The chief planning officer of the finance ministry, Chencho Tshering, said that not a single application was received from existing startups seeking scale-up funding, although some startups have inquired about loans for expansion.
Chencho Tshering said that during the initial phase of implementation, FIs faced significant challenges, primarily due to public confusion about the application process and eligibility criteria and clarified that construction businesses were not eligible for concessional loans.
However, he added that the sector, excluding housing, qualifies for the reinvigoration fund, which offers a four-percent interest subsidy.
Lyonchhen said that FIs were unable to provide construction loans as they had surpassed the Royal Monetary Authority’s (RMA) threshold.
The RMA, in its recent notification, directed FIs to adhere to the new provisions in the revised Prudential Regulations 2024, which came into effect on July 1.
A major change is the introduction of a 150 percent risk weight on loan exposures exceeding 30 percent of a financial institution’s total loan portfolio.
“For institutions whose loan exposure has already crossed the 30 percent mark, any new loans sanctioned will attract a 150 percent risk weight, which will remain in place as long as the exposure exceeds the set limit,” according to RMA.
This implies that banks lending more than 30 percent of their total loans to a single sector must exercise caution, as such loans are now considered higher risk due to the increased risk weight.
Lyonchhen, however, said that the government planned to invest funds into FIs as subordinate debt at a low interest rate. The initiative aims to improve the liquidity of these institutions, enabling them to extend more loans. RMA and the financial institutions are yet to determine the specific amount of debt.
In the first phase of the concessional credit line under ESP, the government allocated Nu 5.3 billion to FIs for collateral-free and low-interest concessional loans, as well as a reinvigoration fund.
The concessional loans and the reinvigoration fund will be accessible through five commercial banks: Bank of Bhutan Limited, Bhutan National Bank Limited, Bhutan Development Bank Limited, Druk PNB, and T-Bank Limited.
Additionally, three non-banking institutions will participate: Royal Insurance Corporation of Bhutan, Bhutan Insurance Limited, and the National Pension and Provident Fund.
The deadline for submitting applications is before December 31, 2024.
